In January 2017, Microsoft issued the biggest bond issue into the US debt market at $17 billion. The purpose of the money was not for asset acquisition, but rather for general corporate expenditure, such as payment of share dividends. With $123 billion in cash being filed as the money held by the company off-shore, the phenomenon is rather interesting. Firms normally borrow heavily when acquiring assets or investing into new areas of the market, not for corporate operations.
Platt & Thomas (2017) attribute the move to borrow rather than using the cash held by the company to high costs and taxes for repatriation of money from overseas coffers. Companies that operate internationally often choose to store their money outside the country to avoid high taxes of moving the cash. This affects the amount of money for investments available in the US, affecting money markets, employment and inflation.
With the debt market currently being as low as they are, and with interest rates expected to rise during the year, the company made a decision to borrow heavily to avoid future borrowing when the rates will be higher, and borrowing more expensive. The move to borrow for operations is informed by Rutherford & Chakravarty (2016) findings that borrowing for corporate operations is 50% cheaper than borrowing for restructure projects.
Government should ensure that the tariffs and taxes on bringing in money into the country are reduced, encouraging investments in the country. With rising interest rates expected throughout the year, (Cunningham & Wallace, 2017) borrowing for operations will be made impossible for many companies with money overseas. Bringing in the money to operate on will be the only option, which will lead to loss in equity for numerous companies as they bring money home. Reducing costs of repatriating will be the better of all available solutions, as this will open up an in-flow of capital which the government can borrow, rather than using international lenders. This will be lucrative both to the government, the businesses and the citizens, who will benefit from increases in investments.
Platt E. & Hale T. (2017) Microsoft issues biggest bond of the year in debt market boom, The Financial Times, online https://www.ft.com/content/7d0a5618-e70d-11e6-967b-c88452263daf
Rutherford L. G. & Chakravarty S. (2016) Does the Purpose of a Loan Matter? Evidence from Bank Loan Contracting
Cunningham T. & Wallace T. (2017) Federal Reserve raises US interest rates for the first time this year, The Telegraph, online http://www.telegraph.co.uk/business/2017/03/15/ftse-100-rises-pound-jumps-122-ahead-uk-jobs-report-expected/
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The Microsoft Bond Issue. (2018, Dec 05). Retrieved from https://speedypaper.com/essays/101-the-microsoft-bond-issue
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